I’m a big fan of federalism for both policy and political reasons.
Returning programs to the states is the best way of dealing with counterproductive income-redistribution policies such as welfare, Medicaid, and food stamps.
Federalism is also the right way of unwinding bad education schemes like Obama’s Common Core and Bush’s No Bureaucrat Left Behind.
And the same principle applies fortransportation, natural disasters, and social issues such as drugs.
And I can’t resist pointing out, for the benefit of those who think such things matter, that federalism is also the system that is consistent with ourConstitution’s restrictions on central government power.
Simply stated, federalism is good news because we get innovation, diversity, and experimentation. States that make wise choices will be role models for their peers. And it’s also worth noting that states that screw up will provide valuable lessons as well.
But sometimes a real-world example is the most compelling evidence of all. And the news that Vermont has cancelled its proposed single-payer healthcare scheme (as predicted by Megan McArdle) shows us why federalism is such a good concept.
Let’s start by reviewing what’s happened. Here are some excerpts from a report published by the Daily Caller.
Vermont Gov. Peter Shumlin is canceling his dream plan to create a single-payer health system in the state, he announced Wednesday. …“In my judgment, now is not the right time to ask our legislature to take the step of passing a financing plan for Green Mountain Care.” The problem is, of course, how to pay for it. Even while plans were moving forward for a 2017 launch of the single-payer system, to be called Green Mountain Care, Shumlin had held off on releasing a plan for how to pay for the system, waiting until his announcement Wednesday.
So why didn’t Shumlin simply call for a big tax hike? Or look for more handouts from Washington? Or what about those fanciful assumptions that socialist health care would be more efficient?
Well, that basically was the plan.
Tax hikes required to pay for the system would include a 11.5 percent payroll tax as well as an additional income tax ranging all the way up to 9.5 percent. Shumlin admitted that in the current climate, such a precipitous hike would be disastrous for Vermont’s economy. …the report also admits that the single-payer system won’t save money as Vermont officials had planned. While both previous reports on Green Mountain Care had assumed “hundreds of millions of dollars” in savings in the very first year of operation, Shumlin’s office is now admitting that’s “not practical to achieve.” …Shumlin also cited slow economic recovery in Vermont as reason to delay, and hopes to try again in the future. But its failure, especially on economic grounds, is a resounding defeat for single-payer advocates.
Yes, this is a “resounding defeat” for socialized health care.
But it’s important to understand why Shumlin’s plan collapsed. He and other politicians obviously figured out (notwithstanding their claims when running for office) that a huge tax hike, combined with “free” healthcare, was a recipe for state disaster.
Productive people and businesses would have emigrated, while freeloaders and scroungers would have immigrated. The state would have gone into a downward spiral.
So even though Shumlin is a hard-core leftist, and even though Vermont’s electorate is so statist that the state came in first place inthe Moocher Index, all these advocates of socialized healthcare were forced to recognize real-world constraints imposed by the existence of other states.
So the productive people of Vermont (at least the ones that haven’t already escaped) should be very thankful for federalism. Competition among the states, as well as freedom of movement between states, is a wonderful check on the greed and foolishness of the political class.
The crowd in Washington, by contrast, has more flexibility to impose bad policy since moving from one country to another is far bigger step than simply moving from, say, California to Texas.
Nonetheless, this also explains why I like tax competition among nations. I want greedy politicians to be haunted to at least some degree by the fear of tax flight so that they will think twice before imposing new burdens. But that’s a subject we’ve reviewed on many occasions, so no need for further details.
The bottom line is that Vermont did face real-world competitive pressure. And that meant the state’s politicians didn’t think they could successfully raise enough money to finance socialist healthcare.
This reminds me of this famous Margaret Thatcher quote about other people’s money.
I’m disappointed that I couldn’t find a clip of her actually making that statement. But if you want to see the Iron Lady in action, you can click here or here.
Let’s conclude by noting that the nation with the most decentralization and federalism is Switzerland, and that country does very well notwithstanding having different languages and cultures.
Which helps to explain why federalism is a very practical solution to the ethnic division in Ukraine.
